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The Focus on Spending—and the Dog That Caught the Car

Conservatives disappointed by the fiscal-cliff deal passed by the House last night steel themselves with the knowledge that the fiscal debate in Washington will pivot to spending, and only spending [1]. The context of a debt-ceiling increase, as opposed to the expiration of tax cuts, gives Republicans the leverage they lacked during the fiscal cliff saga. Right?

Not necessarily. Think of it this way: the Republican insistence on maintaining Bush-era tax rates for the wealthy was widely considered unpopular, a public-relations dud. You know what’s even less popular than that? Cutting entitlements [2].

So, yes, the focus now turns to spending—which poses at least as much risk as it guarantees renewed leverage.

It’s a classic dog-that-caught-the-car scenario. Recall how the fiscal-cliff talks proceeded. The president put forward an audacious offer of $1.6 trillion in new revenue and a paltry $300 billion in cuts (plus $1 trillion in already-pocketed Iraq and Afghanistan drawdown savings). Eventual dealmaker Sen. Mitch McConnell reportedly laughed at the White House’s offer. And then there was a curious reluctance [3] to identify real cuts, specifically to Medicare. McConnell informally pitched a few reforms that amounted to less than what Obama had already offered [4]. House Republicans eventually asked for lower cost-of-living adjustments to retirees as well as a higher eligibility age for Medicare benefits. All told, these reforms add up to about $500 billion over 10 years—far short of the minimum of $2 trillion they’d like to see pared from the federal budget.

Where will the rest of the savings come from? Republicans are going to have to get specific this time; and even more important, they’re going to have to go first. In their counteroffer letter [5] to the president, the GOP leadership offered this justification for breasting their cards: it “would be counterproductive to publicly or privately propose entitlement reforms that you and the leaders of your party appear unwilling to support in the near-term.” That’s not going to fly this time. Obama is demanding a clean debt-ceiling increase. Initially, at least, he will not be asking for new revenue as part of a “grand bargain” on taxes and spending. And since he’s not asking for anything new, the onus will be on Republicans to set the opening bid.

In the just-concluded fiscal cliff battle, the impasse was only superficially about Republicans’ demands for spending cuts—it was about Republicans (not irrationally) wanting bipartisan cover for spending cuts. In the coming battle, the Republican position is effectively going to be “Give us the cuts that we all would rather avoid—or we shut down the government [6].”

Does that smack of a winning political argument to you?

I suspect Republicans are about to discover that the prospects for entitlement reform were a lot more favorable under the cover of such a bargain. Paradoxically, perhaps, new revenue is the friend, not the foe, of the would-be entitlement reformer.

change_me

As with the fiscal cliff, the trick for Obama and Republicans leaders in the debt-ceiling negotiations—and let’s not kid ourselves; the president will have to negotiate—will be to isolate the wing of the Republican party that’s eager to fall on the sword of austerity, despite opposition from the public as well as Wall Street [7]. If Republicans re-up their demands for structural entitlement reforms, Obama will counter with a demand for new revenue extracted from “loopholes and deductions that aren’t available to most Americans [8].” And we’ll be right back into grand-bargain territory—with neither side exercising any more leverage than it had last year. The timing of the budget “sequestration”—shelved [9] for two months—may actually end up greasing the skids for a debt-ceiling increase. After much sound and fury, the Obama administration may be able to pull those delayed cuts out of its pocket and frame them as fresh concessions.

It won’t be pretty. It’s wholly unnecessary. But this process—lurching from crisis to suboptimal, impermanent resolution, and back to crisis—seems to be the best the system can manage right now.

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#1 Comment By steve in ohio On January 2, 2013 @ 12:39 pm

Republicans don’t have alot of winning options. I would suggest getting behind Simpson Bowles–hard for Obama to attack a commission he appointed. Another option (I heard Sean Hannity propose it and surprisingly didn’t hear him exclude defense cuts) is to cut 1% everywhere. If the Democrats try to demogogue the cuts, the GOP can come back with “We’re borrowing a trillion a year and you guys aren’t willing to cut only a penny from every dollar?”

#2 Comment By Luke Daxon On January 2, 2013 @ 1:14 pm

Looking at the photograph, I feel moved to say that a gentleman really ought to wear a pair of socks.

As for the wider debacle, someone else has summed it up far more jauntily than I can:

“A hundred hearts beat placidly on,
Unwitting they that their warder’s gone;
A hundred lips are babbling blithe,
Some seconds hence they in pain may writhe.
For the pace is hot, and the points are near,
And Sleep hath deadened the driver’s ear;
And signals flash through the night in vain.
Death is in charge of the clattering train!”

#3 Comment By JasonG On January 2, 2013 @ 1:32 pm

Indeed. I would have a difficult time playing golf with the President wearing shorts.

#4 Comment By Scott Galupo On January 2, 2013 @ 1:41 pm

Luke,

Pretty sure there’s a pair of ankle socks on those dogs 🙂

#5 Comment By Geoff Guth On January 2, 2013 @ 2:21 pm

Cutting 1% everywhere isn’t viable for exactly the reasons laid out in this post, and for the same reasons sequestration wasn’t palatable.

Are you going to cut Social Security benefits? Medicare benefits? Good luck with that reelection. Yet those are two of the top three biggest parts of the federal budget. Not even Paul Ryan dared go after current beneficiaries.

What about military pay? Are you going to slash disability for wounded veterans? VA hospital benefits for soldiers who lost limbs in Iraq?

And that doesn’t even begin to get into programs that have dedicated lobbying on the Hill.

Republicans have had a great run up until now essentially because they’ve maintained or even expanded federal spending while cutting taxes. They’ve been the borrow-and-spend party and it’s been an extraordinarily successful political formula for the last thirty years (remember Reagan was the pioneer of deficits don’t matter). They’re the party of the free lunch.

Except now, after a massive economic meltdown largely caused by them (George W. Bush explicitly ran on getting rid of surpluses), combined with a massive, irrational hatred of Obama in the GOP base, has led to the situation we’re in now, where Republicans, caught between the low tax rock and the cutting-popular-spending hard place, are being forced to finally, FINALLY make some hard, unpopular choices.

To mix my metaphors, the free lunch chickens hatched by the GOP have come home to roost, and it ain’t pretty.

#6 Comment By Franklin Paisley On January 2, 2013 @ 3:06 pm

Using the debt ceiling as a bargaining chip must stop. Where does this end? If every time this thing comes up for the rest of eternity the minority party threatens calamity unless its demand are met, eventually calamity will ensue. This is so irresponsible.

#7 Comment By reflectionephemeral On January 2, 2013 @ 5:34 pm

I agree with most of Geoff Guth’s post, about the GOP as the party of free lunchers, but not this part: “Republicans, caught between the low tax rock and the cutting-popular-spending hard place, are being forced to finally, FINALLY make some hard, unpopular choices.”

I don’t think they are.

They’re saying they want to cut spending; when you ask them what they want to cut, they say they want to cut spending. Paul Ryan’s plans reflect this perfectly– spending would be cut…. as a percentage of GDP… over decades. There’s roughly zero in the way of specifics. It’s the opposite of courage. “Spending” in GOP politics is a marketing term, a Rorschach ink blot, not a policy goal they care about doing any work toward.

Scott Galupo wrote: “Paradoxically, perhaps, new revenue is the friend, not the foe, of the would-be entitlement reformer.”

There’s no “paradox” of wanting to include revenue in long-term deficit reduction plans. And the GOP aren’t “would-be entitlement reformers”. They don’t care about entitlement reform, except in the PR sense described above. That’s why Paul Ryan, John Boehner, Eric Cantor, and Mitch McConnell all voted for Medicare Part D, as [10].

The Affordable Care Act, meanwhile, included reductions in overpayments for Medicare Advantage, changes in the fee-for-service reimbursement schedule, punishing hospitals for re-admissions for certain conditions, refusing payments for hospital-acquired conditions, accountable care organizations, provisions to investigate and then go after Medicare and Medicaid abuse, a structure for the Independent Payment Advisory Board for Medicare, and insurance exchanges.

It’s reasonable enough to oppose given policy proposals of the current administration; but it is also accurate to say that there are zero fiscal conservatives in the GOP.

#8 Comment By Greg T. On January 2, 2013 @ 5:42 pm

I would have preffered to go “over the cliff”and at least get some cuts to the Pentagon and other areas.

#9 Comment By Ampersand On January 2, 2013 @ 7:03 pm

Government spending is the most popular thing in America.

No one would ever phrase it that way, of course. For one side, it’s about the military and the security/surveillance state; for the other, it’s about the safety net and healthcare. Republicans really love military spending, and a sizable minority of them loves the safety net/healthcare enough to be wary of cutting it. It’s the same for Democrats, the safety net/healthcare, and the military. People that truly want to reduce government spending are probably outnumbered by people who speak Klingon.

The only thing that would stop us is if we were truly unable to get/print more money. Much of conservatism is focused on self-interest, so let me assure you: there are enough people making money off of a functional Big Government that they’re going to do whatever it takes to make it keep working.

#10 Comment By Frank OConnor On January 2, 2013 @ 8:36 pm

Listen, we are not going to cut anything. Not today, not tomorrow, maybe not ever. The public won’t accept entitlement cuts and politicians, especially Republicans, won’t cut defense. Best move for Republicans is to support raising taxes up to the level of spending. Only when the public is paying the full price for their entitlements may they begin to consider cutting government spending. And I still wouldn’t bet on it.

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